At Wackenhut Corp., a Palm Beach Gardens company that provides uniformed security guards, among other services, the phone lines lit up in the weeks after the Sept. 11 attacks. "Hundreds of companies are asking for more security," says Wackenhut spokesman Patrick Cannan. "We have more demand than we can handle."
In Jacksonville, meanwhile, Armor Holdings Inc., which makes security gear like bulletproof vests and offers security planning and risk-management to companies and governments, also had an influx of calls. "The level of inquiries is strong," Armor CEO Jonathan Spiller told analysts during an October conference call. "All three of our business segments are in a good position to benefit."
A quick runup
The heightened interest in corporate protection has had a predictable impact on the stock prices of security-related companies. On Sept. 10, Wackenhut's stock closed at $16.70. When trading resumed a week later, the stock soared 26% to $21.10. By early November, it was trading at $27. Share prices of both companies quickly hit 52-week highs.
Those prices, however, beg the longer-term question of whether the initial burst of inquiries will translate into sustained increases in revenues, and, consequently, into higher profits for Wackenhut and Armor Holdings.
Well-positioned
While Wackenhut says it is experiencing big demand for its guard services, that business represents only half of the company's overall sales. The other half comes from two other businesses: Running prisons and operating a temporary employment agency. In addition, losses suffered at an affiliate in Chile are affecting Wackenhut's earnings this year.
Jim McDonald, an analyst at First Analysis in Chicago, says Wackenhut's earnings should improve next year as the company moves beyond the problems in Chile and sees a pickup in its domestic guard business.
Managing the growth will be vital, however, because the company's guard business yields slim operating margins. This year, McDonald estimates, margins are running at about 3%.
Armor Holdings also appears to be well-positioned for the expected increase in security spending. Some two-thirds of its sales come from selling bulletproof vests, police batons and other anti-riot gear. One-third of sales comes from providing security services.
Unlike Wackenhut, however, Armor Holdings hadn't seen any of the inquiries turn into contracts, as of early November anyway. At $25, Armor Holdings stock was trading at 31 times this year's expected earnings of 80 cents a share.
After the runup of Armor Holdings' stock price, Lehman Bros. downgraded the shares one notch to a "buy."
In the meantime, Armor Holdings and several of its directors think it's a good time to sell the company's stock. Armor plans to sell 4.5 million shares. Proceeds will be used to pay down debt and finance acquisitions. Chairman Warren Kanders plans to sell 500,000 shares, still leaving him with 2.7 million, or 9% of all outstanding shares.
Three other directors -- Nicolas Sokolow, Thomas W. Strauss and Burtt R. Ehrlich -- have sold a combined 59,900 shares since Sept. 11.
Securing a Position
Wackenhut Corp. (NYSE-WAK)
Headquarters: Palm Beach Gardens
CEO: Richard Wackenhut
Business: Provides uniformed guards to business and government
52-week closing high: $27 on Nov. 2 (class A shares)
Sept. 10 closing price: $16.70
Price/earnings ratio*: 47
Market cap: $400 million on Nov. 2
Since Sept. 11: A "significant" increase in demand for security services; lots of overtime; has work for additional 5,000 guards
Armor Holdings (NYSE-AH)
Headquarters: Jacksonville
CEO: Jonathan Spiller
Business: Makes security products and provides risk management services for law enforcement worldwide
52-week closing high: $25.75 on Oct. 10
Sept. 10 closing price: $14.30
Price/earnings ratio*: 69
Market cap: $550 million on Nov. 2
Since Sept. 11: Lots of inquiries, but no firm orders; too early to gauge impact on revenues